A Case Example
Recently SEAM Group consultants assisted a major paper-goods manufacturer in completing a redesign of its MRO management function utilizing supplier integration as a key improvement component.
Historically our client employed hundreds of MRO suppliers at a dozen locations across the continental United States. There was no central control or management of MRO purchases; each plant made its own supplier and strategy decisions. Due to an emphasis on price and negotiation, the supply base at each location was large and diffused with several suppliers supplying the same items, with pricing and supplier selection often handled on an ad-hoc bid basis. On-site inventories were very high and often duplicated by one or more of the suppliers.
An analysis of historical MRO purchases by the multiple plants produced the following:
Purchases were grouped into commodity families. Key MRO families relevant information is below:
Balance of MRO purchases: $15,000,000; suppliers:1000
Storeroom inventory turn rate: 1.1times/year
Cross-functional, cross-organizational teams were assembled to address sourcing, inventory management and order management, for each of the six ‘commodity families.’ Each team was chartered with responsibility to craft a company-wide strategy for its commodity family with a goal to reduce total cost by 10-20%. Multi-discipline team members were given the assignment of ‘wearing two hats,’ one representing the interests of their respective plant locations, the other representing the interests of the company.
Through the initial phase of strategic sourcing, the following results were achieved over an 18-month period:
Total cost reductions (as a % of purchases) were achieved several ways. Depending on the commodity family, reductions were realized in the following manner:
Supplier reduction ~ Leveraged buying 5-18%
Inventory ~ Eliminate supplier-customer duplication 2-5%
Inventory ~ Eliminate plant-to-plant duplication 2-4%
Supplier generated cost reduction ideas 3-15%
Value-added supplier services 1-3%
Administrative costs 2-3%
Improved uptime difficult to quantify
Year over year cost reductions have continued in the range of 4% to 9% and supplier performance and satisfaction continue to be greatly improved.
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